PointofLaw.com
 Subscribe Subscribe   Find us on Twitter Follow POL on Twitter  
   
 
   

 

 

A snapshot of asbestos litigation



I was reading the 10-Q of a mid-sized business for some consulting work I was doing, and it provided a fascinating snapshot of how asbestos litigation is affecting the thousands of tertiary innocent-bystander defendants under the plaintiff-bar's entrepreneurial model of cookie-cutter lawsuits suing 100 defendants hoping for nuisance sums from most of them to fund larger speculative ventures against deeper pockets—at the cost of generating tremendous uncertainty in American business investment, not to mention fundamental fairness:

ASBESTOS

History

United Industrial and Detroit Stoker have been named as defendants in asbestos−related personal injury litigation. Neither United Industrial nor Detroit Stoker fabricated, milled, mined, manufactured or marketed asbestos, and neither United Industrial nor Detroit Stoker made or sold insulation products or other construction materials that have been identified as the primary cause of asbestos−related disease in the vast majority of claimants. Rather, United Industrial and Detroit Stoker made several products, some of the parts and components of which used asbestos−containing material fabricated and provided by third parties. The use of asbestos−containing materials ceased in approximately 1981.

Cases involving United Industrial and Detroit Stoker typically name 80 to 100 defendants. As of September 30, 2006, United Industrial and Detroit Stoker have not gone to trial with respect to any asbestos−related personal injury claims, although there is no assurance that trials may not occur in the future. Accordingly, as of September 30, 2006, neither United Industrial nor Detroit Stoker have been required to pay any punitive damage awards, although there can be no assurance this might not occur in the future. In addition, as of September 30, 2006, some previously pending claims have been settled or dismissed (with or without prejudice). There is no assurance, however, that dismissals and settlements will occur at the same rate, if at all, or that claims that have been dismissed without prejudice will not be re−filed.

Defenses

Management continues to believe that a majority of the claimants in pending cases will not be able to demonstrate that they have been exposed to United Industrial�s or Detroit Stoker�s asbestos−containing products or suffered any compensable loss as a result of any such exposure. This belief is based in large part on two factors: the limited number of asbestos−containing products and betterments sold by United Industrial and Detroit Stoker and United Industrial�s and Detroit Stoker�s access to sales, service, and other historical business records going back over 100 years, which allow United Industrial and Detroit Stoker to determine to whom products were sold, the date of sale, the installation site and, in some instances, the date products were removed from service. In addition, because of the limited and restricted placement of the asbestos−containing products, even at sites where a claimant can verify his or her presence during the same period those products were installed, liability cannot be presumed because, even if an individual contracted an asbestos−related disease, not everyone who was employed at a site was exposed to United Industrial�s or Detroit Stoker�s asbestos−containing products.

These factors have allowed United Industrial and Detroit Stoker to effectively manage their asbestos−related claims.

Settlements

To date, settlements of claims against United Industrial and/or Detroit Stoker have been made without any admission of liability by United Industrial and/or Detroit Stoker. Settlement amounts may vary depending upon a number of factors, including the jurisdiction where the action was brought, the nature and extent of the disease alleged and the associated medical evidence, the age and occupation of the claimant, the existence or absence of other possible causes of the claimant�s alleged illness, and the availability of legal defenses, as well as whether the action is brought alone or as part of a group of claimants. Before paying any settlement amount, United Industrial and/or Detroit Stoker require proof of exposure to their asbestos−containing products and proof of injury to the plaintiff. In addition, the claimant is required to execute a release of United Industrial, Detroit Stoker and associated parties, from any liability for asbestos−related injuries or claims.

Quantitative Claims Information

As of September 30, 2006, United Industrial and/or Detroit Stoker were named in asbestos litigation pending in Arkansas, California, Louisiana, Michigan, Minnesota, Mississippi, New Jersey, New York, North Dakota and Rhode Island. As of September 30, 2006, there were approximately 6,911 total pending claims asserted in law suits, compared to approximately 11,059 pending claims asserted in lawsuits as of December 31, 2005 and approximately 12,897 pending claims as of September 30, 2005. The decrease in claims was primarily attributable to dismissal of cases initially brought in Mississippi in 2002−2003. In 2004, Detroit Stoker was named as a defendant in two cases in Arkansas alleging personal injuries to one and approximately 199 plaintiffs (subsequently reduced to 37), respectively, as a result of silica and/or refractory ceramic fiber exposure, in addition to asbestos exposure. The pleadings in these two cases name approximately 32 and 68 defendants, respectively. Because claims are often filed and disposed of by dismissal or settlement in large numbers, the amount and timing of settlements and the number of open claims during a particular period can fluctuate from period to period and may not be indicative of the trend in future claims, settlements or dismissals. In addition, most of these lawsuits do not include specific dollar claims for damages, and many include a number of plaintiffs and multiple defendants.

Therefore, the Company cannot provide any meaningful disclosure about the total amount of the damages sought. In addition, the direct asbestos−related expenses of United Industrial and Detroit Stoker for defense and indemnity for the past five years were not material.

A significant increase in the volume of asbestos−related bodily injury cases arose in Mississippi beginning in 2002 and extended through mid−year 2003. Management believes this peak in the volume of claims in Mississippi was due to the passage of tort reform legislation (applicable to asbestos−related injuries), which became effective at the end of 2002 and which resulted in a large number of claims being filed in Mississippi by plaintiffs seeking to ensure their claims would be governed by the law in effect prior to the passage of tort reform.

In 2002, United Industrial�s counsel engaged a consulting firm with expertise in the field of evaluating asbestos bodily−injury claims to assist United Industrial in projecting the future asbestos−related liabilities and defense costs of United Industrial and Detroit Stoker.

In 2005, United Industrial�s counsel engaged the same consulting firm to update the report it issued in 2003. In each case, the methodology used by the asbestos liability consultant to project future asbestos−related costs is based primarily on estimates of the labor force exposed to asbestos in United Industrial�s and Detroit Stoker�s products, epidemiological modeling of asbestos−related disease manifestation, and estimates of claim filings and settlement and defense costs that may occur in the future. Using this information, in each case the asbestos liability consultant estimated the number of future claims that would be filed, as well as the related costs that would be incurred in resolving those claims. United Industrial�s and Detroit Stoker�s claims history prior to 2002 was not a significant variable in developing the estimates because such history was determined by the consulting firm not to be significant as compared to the number of claims filed in 2002.

Projecting future asbestos costs is subject to numerous variables that are extremely difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables include the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, costs of medical treatment, the impact of bankruptcies of other companies that are co−defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards. Furthermore, any predictions with respect to these variables are subject to even greater uncertainty as the projection period lengthens. In light of these inherent uncertainties, United Industrial�s and Detroit Stoker�s limited claims history and consultation with the asbestos and insurance consultants, the Company believes that ten years is the most reasonable period for recognizing a reserve for future costs, and that costs that might be incurred after that period were not reasonably estimable. As a result, the Company also believes that its ultimate net asbestos−related contingent liability (i.e. its indemnity or other claim disposition costs plus related legal fees less insurance recoveries) cannot be estimated with certainty.

Based on the assumptions and results reflected in the 2005 and 2003 reports prepared by the asbestos liability consultant and other variables, the Company recorded an undiscounted liability for its best estimate of liabilities for asbestos−related matters in the amount of $31,450 [NB: all numbers in 1000s] as of September 30, 2006 and $ 31,852 as of September 30, 2005, respectively, including damages and defense costs, and its insurance receivables for asbestos−related liabilities were $20,186 and $20,343 at September 30, 2006 and 2005, respectively. These figures reflect the Company�s policy of maintaining a ten−year estimate of future liability, the period in which such costs are deemed to be reasonably estimable.

Given the inherent uncertainty in making future projections, and the fact that United Industrial and Detroit Stoker periodically receive potentially material new information from claimants and their counsel that relates to the factual basis of their asserted and unasserted claims, United Industrial and Detroit Stoker will periodically, either (1) validate the key assumptions used in projecting the future asbestos−related liabilities and defense costs of United Industrial and Detroit Stoker or; (2) re−examine and if necessary update the projections of current and future asbestos claims, based on experience and other relevant factors, such as changes in the tort system and the resolution of bankruptcies of various asbestos defendants.

No assurances can be given as to the actual amount of United Industrial�s and Detroit Stoker�s liability for such present and future claims or the amount of insurance recoveries (including any recoveries from liquidating excess insurance carriers), and the differences from estimated amounts could be material.

Note that United Industrial is one of the luckier companies, because it can document that the suits against it are baseless; companies that don't have decades-old records are less able to defend themselves against manufactured claims. Nevertheless, it is still facing death by a thousand paper cuts; cases settle for under a penny on the dollar, because it's cheaper than litigating, and the trial lawyers are happy with this result, because they're suing enough defendants that the micropayments are profitable to them.

 

 


Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.